Record US pork supply seen as farms return to profit on lower feed costs
Cheaper grain, higher pig prices are reversing producer losses, prompting expansion of herds
Bloomberg in Chicago
US pig farmers are making money for the first time in a year as prices haves surged to a two-decade seasonal high and feed costs have fallen, spurring them to expand herds that will yield the most pork on record.
About 5.882 million sows were withheld for breeding by June 1, the most in four years, with a record 10.31 pigs being born per litter, US Department of Agriculture (USDA) data show. The cost of corn, the main feed grain, has tumbled 32 per cent in the past year. Analysts expect hog futures for December, which rose as high as 83.7 US cents last month, will drop 8.2 per cent to 75 US cents a pound in Chicago by the time they settle.
Cheaper grain and higher hog prices are reversing producer losses that an Iowa State University economist estimated at US$33 per animal and cut Smithfield Foods' earnings by 49 per cent last year.
The USDA predicts pork output will expand 3.1 per cent to a record next year, easing pressure on global meat prices.
"Profits are going to lead to expansion, and that's going to lead to more hogs and lower hog prices," said Ron Plain, a livestock economist at the University of Missouri. "We're going to end up with more pigs being born in the second half of this year than anticipated. That's going to be a drag on 2014."
American consumers may pay as much as 2 per cent more for pork this year, compared to a 3.5 per cent increase in overall food costs, the government predicts. Global meat prices rose 2.1 per cent last month, the biggest gain since September, and are up 4.5 per cent in the past 12 months, United Nations data shows.
While the US pig herd on June 1 was little changed from a year earlier at 66.65 million head, the number of breeding sows was the highest since 2009. Domestic pork output will reach a record 10.6 million tonnes this year and increase to 10.9 million tonnes next year, the department said on Thursday.
Demand for pork is growing in China, the biggest consumer, as middle-class incomes rise. Hong Kong-based Shuanghui International agreed in May to acquire Smithfield, the world's largest producer, for US$4.7 billion. Hedging curbed losses from pig production for Smithfield, which reported net income of US$183.8 million in the 12 months to April 28, from US$361.3 million a year earlier. The Smithfield, Virginia-based company, which earned money in its pork and packaged-meat units, said it lost about US$7 a head. The pig unit had an operating loss of US$119.1 million, compared with profit of US$166.1 million a year earlier.
US warehouses held a record 317,959 tonnes of pork in April, government data show. At the start of peak demand for the summer grilling season in May, supplies were the most ever for the month.
Shipments from the US, the largest exporter, slid to 927,596 tonnes in the five months to May 31, 13 per cent less than a year earlier.